Equity (Stocks): The Ultimate Comprehensive Guide to Wealth Creation

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Equity (Stocks): The Ultimate Engine of Wealth Creation

Discover the meaning, intricate mechanics, investment routes, and the extraordinary power of compounding through stock market investing. A definitive guide for the modern investor.

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Karthikeyan Anandan, MBA., Mphil., PGDPM & LL.,
Faculty in Management studies

1. Meaning and Concept of Equity

At the very foundation of modern capitalism lies a brilliantly simple yet profoundly impactful concept: Equity. In the realm of finance and investment, the term equity is synonymous with ownership. When you possess equity in a business, you do not merely hold a financial instrument; you own a proportional slice of that enterprise, its assets, its future cash flows, and its overarching destiny.

To grasp the essence of equity, one must distinguish it from debt. If a company requires capital to expand, build a new factory, or research a groundbreaking drug, it faces two primary avenues: it can borrow the money (Debt) or it can sell a piece of itself (Equity). Debt creates a legal obligation for the company to repay the principal amount along with fixed interest, regardless of its financial success. Equity, on the other hand, is an invitation to partnership. Investors provide capital in exchange for shares. They do not demand guaranteed interest; instead, they accept the inherent risks of business in exchange for a limitless upside potential.

In accounting terms, the fundamental equation governing all businesses clearly isolates this concept:

Assets = Liabilities + Equity
Therefore,
Equity = Assets - Liabilities

This equation mathematically proves that equity is the residual value. It is what remains for the owners after every creditor, bondholder, and supplier has been paid. This residual nature is precisely why equity represents both the highest risk and the highest potential reward in the corporate capital structure.

Definitions of Equity

Because equity serves multiple functions across different disciplines, it is defined through various lenses:

The Financial Definition: Equity represents the ownership interest held by shareholders in a corporation. It is the lifeblood of the stock market, representing claims on part of the corporation's assets and earnings.
The Accounting Definition (Shareholders' Equity): The net amount of funds contributed by the owners (paid-in capital) plus the retained earnings (or losses) accumulated by the company over its operational lifetime, minus any treasury shares.
The Legal Definition: A body of rights and liabilities. Equity grants the holder specific statutory rights, such as voting on corporate policy, electing the board of directors, and participating in corporate actions, while legally shielding their personal assets from corporate debts (Limited Liability).

2. The Nature and Objectives of Equity

The Nature of Equity

Understanding the nature of equity requires looking beyond the ticker symbols flashing on a screen. The inherent nature of equity shares can be broken down into several core philosophical and structural attributes:

Permanent Capital: Unlike bonds or bank loans that have maturity dates, equity is a permanent source of funding for a company. As long as the company exists as a going concern, the equity capital remains with it. The company is never legally obligated to "buy back" the shares from the investor.
Residual Claimancy: As established by the accounting equation, equity holders are at the absolute bottom of the payout hierarchy in the event of bankruptcy or liquidation. If a company fails, liquidators pay taxes, employees, secured creditors, and unsecured creditors first. Only if anything is left over do the equity holders receive a payout.
Perpetual Fluctuation: The intrinsic and market value of equity is never static. It is dynamically repriced every second the stock market is open, driven by a complex interplay of macroeconomic indicators, company earnings, geopolitical events, and human psychology (fear and greed).
Active Participation: Unlike passive debt, equity inherently carries a voice. Through voting rights, the collective body of equity holders dictates the ultimate direction of the company by electing the Board of Directors.

The Objectives of Investing in Equity

Why do millions of individuals and massive institutional funds pour trillions of dollars into equities despite the lack of guarantees and the presence of severe market volatility? The objectives are multifaceted but predominantly revolve around the aggressive pursuit of financial growth:

Long-Term Wealth Creation: Historical data spanning over a century conclusively demonstrates that equities outperform almost all other asset classes (bonds, gold, real estate, cash) over extended periods. The primary objective is exponential capital growth through the power of compounding.
Capital Appreciation: Investors seek to buy shares at a lower price and sell them at a higher price. As a company grows its revenues, expands its margins, and captures market share, the underlying value of its equity mathematically increases.
Dividend Income Generation: Mature, stable companies often distribute a portion of their profits back to shareholders in the form of cash dividends. For many investors, particularly retirees, creating a portfolio of strong dividend-yielding equities is a primary objective for establishing a passive income stream.
Hedging Against Inflation: Inflation is the silent thief of purchasing power. Fixed-income instruments often fail to outpace inflation. However, equities represent real businesses that can raise the prices of their goods and services in an inflationary environment, thereby protecting the investor's purchasing power over time.
Ownership and Control: For strategic investors, founders, and activist hedge funds, the objective of holding equity goes beyond mere financial return; it is about securing voting power to control corporate strategy, instigate mergers, or restructure the management team.

3. Characteristics and Importance

Key Characteristics

The distinct features that separate equity from other asset classes:

High Liquidity: Shares of publicly traded companies can be bought and sold almost instantly during market hours, providing rapid access to cash compared to real estate or art.
Limited Liability: The maximum financial loss an equity investor can suffer is strictly limited to the amount they invested. Personal assets (homes, savings) cannot be seized to pay corporate debts.
Transferability: Ownership is easily transferable from one entity to another without requiring the permission of the company itself (for public companies).
No Fixed Dividend Guarantee: Companies are under no legal obligation to declare dividends. Profits can be entirely retained for reinvestment (Retained Earnings).
Subordination: Equity holds the lowest priority claim on assets during liquidation, standing behind all forms of debt and preferred stock.

Macro Importance

The vital role equity plays in the global economic engine:

Corporate Capital Formation: Equity markets allow entrepreneurs and corporations to raise massive amounts of capital required for innovation, infrastructure, and job creation without the suffocating burden of mandatory debt repayments.
Democratization of Wealth: Equity markets allow the average citizen to participate in the wealth generated by the world's most successful corporations (like Apple, Microsoft, or Reliance), effectively democratizing economic growth.
Efficient Capital Allocation: Stock prices act as signals. High stock prices in a specific sector (e.g., green energy) signal that society values that sector, directing capital away from dying industries toward the future.
Economic Barometer: Broad equity indices (like the S&P 500 or Nifty 50) serve as leading indicators for the health of the national and global economy, reflecting collective expectations of future corporate earnings.

4. Types of Equity (Detailed Classification)

The term "equity" is an umbrella concept. Within the corporate structure, equity is intricately sliced into various categories, each carrying its own specific set of rights, risks, and privileges. Understanding these types is crucial for sophisticated capital allocation.

A. Ordinary Shares (Common Stock)

Ordinary shares form the bedrock of a company's equity capital. When you buy a "stock" on the open market, you are almost always purchasing common stock. These shareholders are the true owners of the business, bearing the ultimate risk and reaping the ultimate rewards.

Voting Power: Common shareholders possess the fundamental democratic right to vote on critical corporate matters, typically on a "one share, one vote" basis. They elect the Board of Directors, approve mergers, and vote on stock splits.
Maximum Capital Appreciation: Because common stock has no ceiling on its value, it provides the highest potential for long-term capital appreciation. If a company becomes the next global tech giant, the common stock price will soar exponentially.
Variable Dividends: Dividends are entirely at the discretion of the Board of Directors. They can fluctuate year-to-year based on profitability or be suspended entirely during economic downturns.
Highest Risk: They are the absolute last in line during bankruptcy proceedings, making them the riskiest form of corporate investment.

B. Preference Shares (Preferred Stock)

Preference shares are a hybrid financial instrument, sitting directly between common stock and debt. As the name implies, these shares carry a "preference" or priority over common shares in specific scenarios, but this safety comes at the cost of giving up certain ownership privileges.

Fixed Dividend Rate: Preferred shares usually guarantee a fixed dividend payout (e.g., 6% of face value) that must be paid before any dividends can be distributed to common shareholders.
Priority in Liquidation: In the tragic event of corporate bankruptcy, preferred shareholders have a senior claim on the liquidated assets compared to common shareholders (though still junior to bondholders).
No Voting Rights: The major trade-off for their priority status is that preferred shareholders generally do not have voting rights regarding corporate governance.
Sub-Types of Preference Shares:
- Cumulative: If the company misses a dividend payment due to poor earnings, the unpaid dividends accumulate in arrears and must be paid in full before common shareholders see a dime.
- Non-Cumulative: Missed dividends are lost forever; they do not accumulate.
- Convertible: Gives the holder the right to convert their preferred shares into a predetermined number of common shares after a specific date, offering the best of both worlds (fixed income initially, capital appreciation later).
- Participating: Allows the holder to receive additional dividends beyond the fixed rate if the company achieves predetermined profit targets.

C. Private Equity (PE)

Private equity refers to ownership or interest in an entity that is not publicly listed or traded on a stock exchange. This is the domain of institutional investors, high-net-worth individuals, and specialized funds. PE is characterized by long lock-up periods and active management.

Venture Capital (VC): A sub-set of private equity focused on providing capital to early-stage, high-potential startups. It carries immense risk (most startups fail) but offers astronomical returns if the company succeeds (e.g., early investors in Uber or Facebook).
Leveraged Buyouts (LBOs): A strategy where a PE firm buys a mature public company using a massive amount of debt, takes the company private, restructures it to increase profitability, and then sells it or takes it public again years later.
Illiquidity: Unlike public stocks, private equity cannot be easily sold. Capital is typically locked away for 5 to 10 years while the PE fund executes its business strategy.

D. Specialized Equity Instruments

Corporations utilize various specialized mechanisms to issue equity for specific strategic purposes, rewarding employees, or adjusting their capital structure.

Sweat Equity: Shares issued to directors, founders, or employees at a discount or for consideration other than cash. It is designed to reward their "sweat"—the hard work, intellectual property, and value addition they bring to the company.
Bonus Shares: Free additional shares distributed to existing shareholders in proportion to their current holdings. While it increases the number of shares held, it does not change the total value of the investor's holding (similar to slicing a pizza into 8 pieces instead of 4; the amount of pizza remains the same). It is essentially capitalizing retained earnings.
Rights Issue: An invitation to existing shareholders to purchase additional new shares in the company, usually at a discount to the current market price. This allows the company to raise capital quickly while giving existing owners the "right" to maintain their proportional ownership and avoid dilution.
Treasury Stock: Shares that a company originally issued but has subsequently bought back from the open market. These shares no longer pay dividends and have no voting rights while held in the treasury. They can be retired or reissued later.

The Equity Investment Ecosystem

Visualizing the step-by-step journey of capital flow from the investor to the corporate engine and back to wealth generation.

Preparation

• Financial Goal Setting
• Risk Profiling
• Capital Allocation
• Basic Market Education

Infrastructure

• Complete KYC Norms
• Open Demat Account
• Open Trading Account
• Link Bank Account

Execution Route

• Direct Stock Picking
• Equity Mutual Funds
• Exchange Traded Funds (ETFs)
• Systematic Investment (SIP)

Wealth Realization

• Compounding Growth
• Dividend Reinvestment
• Portfolio Rebalancing
• Tax-Optimized Selling

5. How to Invest in Equity? (The Operational Guide)

Transitioning from understanding the theory of equity to actually owning it requires navigating the modern financial infrastructure. The process has been heavily digitized, making it seamless but structured. Here is the definitive step-by-step guide on how an individual begins their equity journey.

Step 1: Obtain a PAN Card and Complete KYC

The Permanent Account Number (PAN) is the bedrock of financial transactions in countries like India, ensuring tax compliance. Before opening any investment account, you must complete the Know Your Customer (KYC) process. This involves verifying your identity and address through government-issued documents. Today, this is primarily done via e-KYC (Aadhaar-based biometric or OTP verification).

Step 2: Choose a Stockbroker (Depository Participant)

You cannot walk into a stock exchange and buy shares directly. You need an intermediary—a registered stockbroker. Brokers are broadly divided into two categories:
Full-Service Brokers: Offer research reports, dedicated relationship managers, and advisory services, but charge higher brokerage fees (often a percentage of the trade value).
Discount Brokers: Offer a pure, technology-driven execution platform with zero or very low flat-fee brokerage. They provide the tools but leave the decision-making entirely to you. Ideal for self-directed investors.

Step 3: Open the Trifecta of Accounts

Investing requires three interconnected accounts to function in harmony:

Bank Account: Where your fiat currency resides. This is linked to your trading account to transfer funds in and out.
Trading Account: Provided by the broker. This acts as the transactional interface. You use this platform (app or website) to place 'Buy' and 'Sell' orders on the exchange.
Demat Account (Dematerialized Account): This is the digital vault. Once a buy order is executed in the trading account, the physical shares (now purely digital) are delivered to and stored securely in your Demat account, which is maintained by central depositories (like CDSL or NSDL).

Step 4: Analyze and Select Stocks

This is the intellectual core of investing. Selection is driven by two primary methodologies:
Fundamental Analysis: Examining the company's financial statements (Balance Sheet, Income Statement, Cash Flow), analyzing industry trends, evaluating management competence, and calculating intrinsic value to find undervalued businesses.
Technical Analysis: Studying price charts, trading volume, moving averages, and market trends to predict short-to-medium-term price movements.

Step 5: Place the Order

Once you select a stock, you transfer funds from your bank to your trading account and place an order. There are two primary order types:
Market Order: Instructs the broker to buy the shares immediately at whatever the current prevailing price is. Guarantees execution, but not the price.
Limit Order: Sets a specific maximum price you are willing to pay. The order will only execute if the market price drops to your specified limit. Guarantees price, but not execution.

Step 6: Settlement

In modern markets, trades settle on a T+1 or T+2 basis (Trade Day plus one or two working days). The money is deducted from your trading account immediately, but the shares will reflect in your Demat account after the settlement cycle is complete, finalizing your legal ownership.

6. Investment Areas: The Routes to Equity Exposure

Not everyone has the time, inclination, or expertise to analyze corporate balance sheets. Fortunately, the financial industry has created multiple "routes" to access the wealth-generating power of equities, catering to different risk appetites and time commitments.

Direct Equity (Stock Picking)

The investor directly purchases shares of specific companies (e.g., buying 100 shares of Tesla or HDFC Bank). This is the purest form of equity investing.

Pros: Absolute control over portfolio, potential for massive multi-bagger returns, no management fees, direct receipt of dividends.
Cons: Extremely time-consuming, requires deep financial literacy, high risk of capital loss if the chosen company underperforms, emotional stress.
Best For: Seasoned investors with analytical skills and high risk tolerance.

Equity Mutual Funds

Money is pooled from thousands of investors and handed over to a professional Fund Manager. The manager analyzes the market and builds a diversified portfolio of dozens of stocks.

Pros: Professional management, instant diversification (reducing risk), highly regulated, easy to invest small amounts regularly via SIP (Systematic Investment Plan).
Cons: You pay an Expense Ratio (management fee) regardless of performance, lack of control over specific stock selection.
Best For: Retail investors, salaried professionals building long-term wealth (retirement, children's education) without wanting to track the market daily.

Index Funds & ETFs

Passive investment instruments. Instead of a fund manager trying to "beat the market," these funds simply blindly copy a specific index (like the S&P 500 or Nifty 50) in the exact same proportions.

Pros: Ultra-low fees (very small expense ratio), consistently beats a large percentage of actively managed funds over decades, removes human bias, transparent.
Cons: You will never beat the market (you *are* the market), provides downside protection only as far as the broad market falls.
Best For: Warren Buffett's recommended strategy for 90% of investors; ideal for core, set-it-and-forget-it portfolio building.

PMS & AIFs

Portfolio Management Services (PMS) and Alternative Investment Funds (AIF) are elite, highly customized investment vehicles.

Pros: Bespoke portfolios tailored to specific tax situations or aggressive strategies, access to complex instruments (derivatives, unlisted shares).
Cons: Extremely high entry barrier (e.g., minimum investment of $50,000 to $1,000,000 depending on jurisdiction), high performance fees and management costs.
Best For: High Net Worth Individuals (HNIs) and institutional investors seeking specialized alpha generation.

7. Equity Return Calculation for Shareholders

To evaluate if an investment is truly successful, one must look beyond emotions and rely on rigorous mathematical calculations. Equity returns are generated from two primary sources: Capital Appreciation (the stock price going up) and Dividends (cash payouts). Understanding how to calculate these metrics is non-negotiable for serious investors.

A. Absolute Return

This is the simplest way to measure how much money you made or lost over a specific period, without factoring in the time value of money or the length of the holding period.

Absolute Return (%) = [ (Current Value - Initial Investment) / Initial Investment ] × 100

Example: You bought 100 shares of Company X at $50 per share (Total Investment = $5,000). Three years later, the price is $80 per share (Current Value = $8,000).
Calculation: [ ($8,000 - $5,000) / $5,000 ] × 100 = (3,000 / 5,000) × 100 = 60%
Critique: While a 60% return sounds great, Absolute Return doesn't tell us if it took 1 year or 10 years to achieve it, making it insufficient for comparing different investments.

B. Dividend Yield

This metric calculates how much cash flow you are receiving from dividends relative to the price you paid (or the current market price) of the stock. It is crucial for income-focused investors.

Dividend Yield (%) = (Annual Dividend Per Share / Current Market Price Per Share) × 100

Example: A telecom company pays an annual dividend of $4.00 per share. The stock is currently trading at $100 per share.
Calculation: ($4.00 / $100.00) × 100 = 4%
Insight: A 4% dividend yield means that for every $100 invested, you receive $4 in cash annually, regardless of whether the stock price goes up or down.

C. Total Return

Total Return is the true, comprehensive measure of equity performance because it combines both the capital gains and the dividends received over the holding period.

Total Return (%) = [ (Ending Value - Beginning Value + Total Dividends Received) / Beginning Value ] × 100

Example: You bought a stock for $100. After one year, the price is $110. During that year, you received $3 in dividends.
Calculation: [ ($110 - $100 + $3) / $100 ] × 100 = ($13 / $100) × 100 = 13% Total Return

D. CAGR (Compound Annual Growth Rate)

CAGR is the holy grail of investment metrics. It calculates the smoothed, average annual rate of return an investment generates, assuming that the investment has been compounding continuously over the time period. It eliminates the distortion of volatility to give you a clear annualized growth rate.

CAGR = [ (Ending Value / Beginning Value) ^ (1 / Number of Years) ] - 1

Example: Let's revisit the first example. You invested $5,000, and after exactly 3 years, it grew to $8,000.
Calculation: [ ($8,000 / $5,000) ^ (1 / 3) ] - 1
= [ 1.6 ^ 0.3333 ] - 1
= 1.1696 - 1 = 0.1696 or 16.96%
Conclusion: While the absolute return was 60%, the CAGR tells us the investment grew at a compounded annual rate of roughly 17% per year over the 3-year period.

8. Fundamental Rights of Equity Holders

When you purchase common stock, you are not merely engaging in a financial transaction; you are entering into a legally binding relationship with the corporation. By virtue of the Companies Act (and equivalent global corporate laws), equity shareholders are vested with powerful rights designed to protect their interests against management overreach or fraud.

Right to Vote and Influence Governance

This is the most critical right. Shareholders vote at the Annual General Meeting (AGM) to elect the Board of Directors, appoint statutory auditors, and approve major corporate restructuring (like M&A or stock splits). Activist investors often use this right to force changes in underperforming management.

Right to Claim Dividends

While companies are not legally obligated to declare dividends, once the Board of Directors officially declares a dividend, it immediately becomes a debt of the company. Shareholders then have an absolute legal right to receive that proportion of the profit.

Pre-Emptive Rights (Rights of First Refusal)

If a company decides to issue new shares to raise more capital, current shareholders have the pre-emptive right to purchase these new shares before they are offered to the general public. This crucial right prevents an investor's ownership percentage from being unfairly diluted against their will.

Right to Information and Inspection

Transparency is mandated by law. Shareholders have the right to receive the annual report, audited financial statements, notices of meetings, and circulars. Furthermore, under specific legal conditions, they have the right to inspect corporate statutory registers and minutes of general meetings.

Right to Transfer Ownership

A hallmark of public equity is its immense liquidity. Except in specific lock-up scenarios (like IPO allocations for founders), a shareholder has the unabridged right to sell, transfer, or gift their shares to any other entity on the open market without seeking permission from the company.

Right to Sue (Class Action)

If the management, board, or majority shareholders commit fraud, severe mismanagement, or actions that oppress minority shareholders, equity holders have the legal right to file class-action lawsuits or approach regulatory tribunals to seek damages and rectify the mismanagement.

9. Risks and Challenges of Equity Investment

"Risk comes from not knowing what you are doing," stated Warren Buffett. The phenomenal wealth-generating capacity of equity is inextricably linked to its high risk profile. Understanding these risks is the difference between investing and mere gambling. The risks can be broadly categorized into Systemic and Unsystemic risks.

A. Systematic Risks (Market Risks)

These are macroeconomic risks that affect the entire market. They cannot be eliminated through diversification because they impact almost all companies simultaneously.

Interest Rate Risk: When central banks (like the Fed or RBI) raise interest rates, borrowing becomes expensive for companies, hurting their profit margins. Furthermore, high-interest rates make safe bonds more attractive, pulling money out of the risky stock market and causing crashes.
Inflationary Risk: Rampant inflation increases the cost of raw materials and labor for companies. If they cannot pass these costs to the consumer, earnings collapse.
Geopolitical Risk: Wars, pandemics, global trade tariffs, and political instability can trigger massive market sell-offs as institutional investors panic and move to safe-haven assets like gold.
Currency Risk: For foreign investors, fluctuations in exchange rates can wipe out equity gains. If the stock goes up 10% but the local currency depreciates 15% against the dollar, the real return is negative.

B. Unsystematic Risks (Company Specific)

These are risks specific to a single company or industry. Unlike systematic risk, you can eliminate unsystematic risk by diversifying your portfolio across various sectors.

Business Risk: The risk that the company's core product or service becomes obsolete (e.g., Kodak failing to adapt to digital photography), or they face crushing competition, leading to declining sales.
Financial (Credit) Risk: If a company takes on too much debt and fails to generate enough cash flow to service that debt, it can go bankrupt. As equity holders are the residual claimants, their investment goes to zero.
Management/Governance Risk: Poor strategic decisions, corporate fraud, accounting scandals (e.g., Enron), or toxic leadership can destroy a company's stock price overnight.
Regulatory Risk: Sudden changes in government policy (e.g., banning a specific chemical, heavily taxing an industry, or tightening data privacy laws) can cripple specific sectors.

C. The Psychological Challenge

Beyond the mathematical and economic risks, the greatest challenge for an equity investor is psychological. The stock market is a giant pendulum swinging between extreme optimism (greed) and unjustified pessimism (fear). Navigating the Fear of Missing Out (FOMO) during massive bull runs and maintaining the discipline not to panic-sell during crashes (like the 2008 financial crisis or the 2020 pandemic crash) is statistically the primary reason retail investors fail to achieve the market's long-term returns.

Frequently Asked Questions (FAQ)

1. What is the fundamental difference between trading and investing in equity?

Investing is a long-term approach focused on fundamental analysis; you are buying a piece of a business to hold for years or decades, benefiting from compound growth and dividends. Trading is a short-term strategy focused on technical analysis; traders buy and sell stocks within days, hours, or minutes, attempting to profit from short-term price fluctuations. Investing builds wealth; trading generates income (but carries significantly higher risk of rapid loss).

2. Can I lose more money than I initially invested in the stock market?

If you simply buy cash equity (going "long" on a stock without using borrowed money or margin), your maximum risk is limited to your initial investment. The stock price can go to zero, but you will not owe anyone additional money due to the principle of limited liability. However, if you use margin (borrowed money from your broker), short sell, or trade complex derivatives (options and futures), your losses can exceed your initial capital.

3. How much money do I need to start investing in equities?

Thanks to modern discount brokerages and fractional shares (in some markets), the barrier to entry is extremely low. You can start investing with as little as $10, ₹500, or equivalent local currency. The best approach for beginners is a Systematic Investment Plan (SIP) in an Index Mutual Fund, which allows you to invest a small, fixed amount every month automatically.

4. Are dividends guaranteed if I hold common stock?

No. Unlike interest on a bank deposit or a bond, dividends on common stock are entirely discretionary. Even if a company makes a massive profit, the Board of Directors may choose to reinvest 100% of that money back into the business for research, expansion, or debt reduction rather than paying it out to shareholders. Only preference shares offer a fixed dividend expectation.

5. Why do stock prices fluctuate every second?

Stock prices are determined purely by the laws of supply and demand in real-time. If more people want to buy a stock (demand) than sell it (supply) at a given moment—perhaps due to a positive earnings report or economic news—the price goes up. Conversely, if fear drives more people to sell than buy, the price drops. It is an auction market constantly processing global information.

6. What is a "Multibagger" stock?

A "multibagger" is financial jargon for an equity stock that yields returns several times its original investment cost. For instance, a "10-bagger" means the stock price has multiplied by 10 (a 900% return). These are usually found in companies with exceptional, disruptive growth over long periods, famously coined by mutual fund manager Peter Lynch.

7. Should I sell my shares if the market crashes?

Generally, no. Panic selling during a market crash is one of the biggest mistakes novice investors make; it locks in temporary paper losses into permanent capital destruction. Historically, broad equity markets have always recovered from crashes (like 1987, 2008, 2020) and gone on to reach new highs. If the fundamental reason you bought a solid company hasn't changed, a market crash is actually viewed by sophisticated investors as a "sale" to buy more shares at discounted prices.

Equity (Stocks): Meaning, Definitions, Objective, Characteristics, Importance, Types and The Ultimate Comprehensive Guide to Wealth Creation